Friday, April 25, 2003

Ocean Spray: The perils of going it alone and small At least by brand recognition, Ocean Spray, the American firm synonymous with cranberries and juice,  should be a winner. But as a small player in an oligopoly beverage market, it is in trouble. There's a lot of pain for the 80-year-old juice and cranberry product firm. The company has just rejected an $80 million bid for its brand name from Northland Corp,. another cranberry and juice company.  While the board refused the bid, the sense is that the company is now in play for an acquisition and that the opening bid has been made.. Ocean Spray has had a lot of problems. It lost its CEO, it has seen its credit ranking slip, and it faces a shareholder rebellion.  All that comes after a major decline in cranberry prices due to oversupply; the price per barrel is less than 33% of what it was 1997. Company grosses have fallen from $1.48 billion in 1998 to $1.07 billion in 2002.  Ocean Spray, which practically invented the shelf-stable juice category in the supermarket, has fallen on hard times due to several reasons. The company has a lot of competition in the juice industry, with new companies entering all the time. The company has specialized in larger bottles (half gallons and gallons) of  shelf stable juices, while the market growth  has been in single-server cooler juices. In 1997, Pepsico  opted out of its distribution agreement with Ocean Spray, distributing its own Tropicana juice. Ocean Spray now uses food brokers, but they don't have anything near the muscle that Pepsico does. On the shelves it shares with larger bottles of shelf-stable juice, in-store brands are growing strongly, at Ocean Spray's expense. An unusual added issue is that Ocean Spray is a cooperative, and selling it will require a 75% vote from the owner-growers. That's one reason it hasn't been sold yet. But it's thought  that, in the long run, many of these cash-strapped farmers will be eager to sell, to get a share of the sale price.  The Northland offer couldn't have solved anything, in any case;  With its unimpressive sales ($101 million) and its lack of distribution power, it would hardly solve Ocean Spray's dilemma. The eventual result is  a buyout from one of the big three beverage companies: Coke, Pepsi, or Cadbury-Schweppes; or gradual bankruptcy. As the value of the company declines, the growers will have to act fast to salvage what they can.  Principles illustrated: Being #1 is great, #2 is good, #3 is difficult, #4 or higher is a losing game. Oligopolies collect and discard brands. Oligopolies try to control shelf space.  Oligopolies buy up innovators or steal their ideas and put them out of business.    7:28:51 PM

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